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Strategy Meeting

Grady Health SystemBoard of Directors

Nov. 1, 2010

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Threading The NeedleWhat We Don’t Know:

• Whether healthcare reform will be fully implemented• If the reform timetable will be changed

What We Know:• Medicare, Medicaid and private insurance payments cannot

continue to grow• Federal, state and county taxpayer support is not guaranteed

What Grady’s Leaders Must Do:• Set direction now without full knowledge and make adjustments

alone the way• Balance service and revenue now

This is the toughest part of Leadership

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Acknowledgements• Grady has a long and storied history of caring for

patients, particularly those without choice• Grady’s medical school relationships have been

critical to Grady’s success• Education, research and clinical leadership have

been important to Grady• Grady and its physician colleagues are inter-

dependent• The Authority, Corporation and Grady staff are all

clearly dedicated to excellence in patient care

While we may not acknowledge these points often enough today we do understand and appreciate them!

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Our Initial Assumptions

1. GMHC and FDHA would act seamlessly

2. Counties would continue to support our Mission with adequate and timely funding as contracted

3. We could operate Grady without getting bogged down in politics (funding and programs)

4. We could raise sufficient funds from the local community to make up for previous underinvestment

We would run Grady like a business

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Setting The Stage

• Grady’s future income is at risk - medical services and medical education will be directly affected.

• Grady must adjust to fundamental shifts in the industry over the next 3 years – there is no choice– Care delivery must reflect new payment rates and methods– The current “resident driven” teaching and care delivery

model is not sustainable at Grady– Grady must shift from treated those “who show up” to

attracting paying patients to help off set safety net costs.• The new challenges will be considerably more difficult

to manage than what we faced in the past.• There are immediate financial challenges that must

be addressed now

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Reform Can Be Good News For Grady … If We Are Prepared!

Grady Has Choices

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Key Questions Grady Must Answer

– What is the right mix of care delivery, education and research?

– What teaching, professional services contracts and medical relationships will be required?

– Will Grady be permitted to retain earnings for re-investment and to support its mission?

• Can we operate profitably?• Will funding sources allow it?

– Can Grady be more than a charity hospital? – Does the safety net mission survive beyond 2014?

What will Success look like for Grady?

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Grady’s Funding Sources

Now 2015

– Patient Service Revenue• Medicare• Medicaid• Commercial Insurance• Self-Pay

– Governmental Subsidies• Medicare• Medicaid• Contracted County Subsidies

– Graduate Medical Education (GME)

The Impact of Reform on Grady =

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Grady’s Funding Stream - placeholder

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The Impact of Reform on Grady – 2019- placeholder

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Market Overview

Grady’s Current Position

• Georgia’s undisputed leader for trauma care and the busiest trauma center in the Southeast.

AND• Georgia’s undisputed leader in uncompensated care.

Despite commitments to education and research, we fit the profile of a very large but not differentiated community hospital.

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Grady’s Current Position

• 5 county population will increase : 6.5% by 2013, 20% by 2019

• 14.6% of Fulton & DeKalb inpatients• Payer Mix ~ 40% uninsured• Utilization exceeds managed markets• Costs are higher than managed markets• Modest reduction in use rates could produce

a surplus of 900 beds• We compete with hospitals, physicians and

some community-based services

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The March To Sustainability

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2007 At A Glance

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Grady’s Response

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Grady’s Remarkable Progress

2008 Focus - Stabilize Grady• New operating entity• New leadership• Stable funding• New capital

2009 Performance • Quality/LOS• Financial• Volume• Infrastructure• Hospital of Choice

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Fundamental Challenges Have Not Gone Away

• Disparity between services provided and funding received

• Underinvestment makes Grady unattractive to patients with a choice

• Medical leadership not well aligned or incented

• Lack of clinical portfolio focus

• Lack of physician referral relationships

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The Roadmap To 2015: From Survival to Sustainability

• 2010 - Making Grady Work

• 2011 - Becoming A Preferred Destination

• 2012 - Producing Results

• 2013 to 2015 - Maintaining High (and Profitable) Performance Levels

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The 2015 Goal: “Community Competitive” Grady

• Clinically, our outcomes will exceed our peers.• Financially, our performance will permit annual investments in

programs, people, technology, equipment, physical plant and reserves.• Operationally, customer service, business processes, patient access

and ease of use are at community standards.• Customer Service, we serve a diverse population, maintain our

historic safety net mission• Market Position, we are a growing “community competitive” network of

hospitals, physicians and other providers attractive to patients and payers

• We are essential to our community, state and local governments, fellow hospitals and medical schools

Grady’s “Hospital of Choice” status for selected services provides revenue to support safety net mission.

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•Patient Centered•Clinically Efficient•Connected

The Right CareThe Right TimeThe Right Place

“Community Competitive” Network

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2010 Status Report

• Quality• LOS • Financial• Volume• Infrastructure• Hospital of Choice

Uncertainty over Healthcare Reform

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The 2011 Plan – 4 Major Thrusts

1. Continued Performance Improvementa) Qualityb) Satisfaction levelsc) Financial

2. Making Grady Growa) Targeted clinical programsb) Prune selectivelyc) Ambulatory care network expansiond) Relationship development

3. Balance Budget & Service Commitments4. Prepare for Reform

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Base Performance Requirements Have Expanded

• Make Grady work for all patients• Deliver services within the expected

reduced payment structure• Create alternative models of care delivery• Meet financial performance targets • Find alignment with government partners

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The Immediate Challenge

The Difficult Topics

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The Immediate Challenge

Matching services and resources in 2011

• We face a 2011 budget shortfall of $20M• We must make adjustments effective Jan. 1,

2011• We need to prepare for budget discrepancies

longer term

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The Immediate Challenge

Expense (service reductions)

1. Management has cut recommendations2. Will need Board action in December3. What we want Board to do

– Allow us to balance budget. Services must meet funding

– Provide direction and protection

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The Immediate ChallengeRevenue

What we need the Counties to do:Fulton

• Follow 1984 contract• Pay based on annual allocations• Simplify/reduce time spent reporting

DeKalb• Continue support

What we need the State to do:• Eliminate ICTF rules that damage Grady• Fix Morehouse pass-through formula

What we want Board to do:• Make this a priority• Support Grady’s position• Use your Influence

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Break

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Reminder: Threading The Needle

What We Don’t Know:• Whether healthcare reform will be fully implemented• If the reform timetable will be changed

What We Know:• Medicare, Medicaid and private insurance payments cannot

continue to grow• Federal, state and county taxpayer support is not guaranteed

What Grady’s Leaders Must Do:• Set direction now without full knowledge and make

adjustments alone the way• Balance service and revenue now

This is the toughest part of Leadership

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The Impact Of Reform

•Grady’s Patient Base will Change•Patient Service Revenues Reduced•Payment Methods will Change•Safety Net Support Reduced

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Grady’s Potential Patient Base Will Change

Expansion:• Expanded coverage (but not universal) 37M

new covered lives – 2019 Grady?• Expansion of Medicaid Eligibility (16M)

– 40% increase from 2010 to 2019– 133% of FPL

• Expansion of Medicare & Commercial BenefitsContraction:

• Less Dependent - Have choices of providers• More attractive and more valuable to other

providers• Shift in Employer Benefit Plans

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The Reform Opportunity in Grady’s Service Area

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The Reform Growth Opportunity

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Publicly Supported Patient Service Revenues Will Decrease

• Hospital payments reduced by $155B over 10 years; $100B from reduced payments, balance in “savings” from reduced subsidies for uncompensated care.

• Medicare payment per admission in 2019 - $1000• Medicaid rates increase by 2010 but then revert to 85%

of 2008 rates• Physicians payment rates will be reduced (except

primary care)

Note: Medicare cuts occur before coverage expands

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Private/Commercial Business

• Coverage will expand via traditional markets or Health Care Exchanges– Short term demand will increase– Capacity could be a problem

• Business may abandon/reduce insurance benefits• Commercial payers will pass their risks and costs to

hospitals and physicians– Commercial payers (Blue Cross and others) will not be able to

raise rates– Commercial plans will have to be competitive with public plans– Rate pressure on providers will significantly increase– Payers will look to bundled payment structures for relief. (ACOs

and Medical Homes (Piedmont + Cigna))

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Payment Model Changes

Providers get paid for services provided – not incentive for reducing costs

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The Opportunity

Providers get paid for right care, right time, right location – incentive for reducing costs

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Safety Net Support Will Be Decreased

• Medicare DSH payments reduced (2014)• Medicaid DSH payments will decrease from 2014

to 2020• Payment rates for Medicaid to be pegged at 89%

of 2008 rates • Medicaid payments to states 100% from 2014 -

2016 then reduced to 90% by 2020• Support from State and County Government?

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New Requirements For Providers

• Clinical and financial integration of physicians and hospitals (Piedmont)

• Bundled rates – pilots no later than 2013• Value based purchasing (2013) • Readmission penalties (October 2012)• Penalties for hospital acquired conditions (2015)

– 1000 hospitals will be in the bottom quartile and have reimbursement cut

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New Requirements For Providers

• Accountable Care Organizations encouraged (2012)

• Medicaid Medical Homes

• Publicly reported outcomes

• Temporary increase in primary care reimbursement 10% ▬ 2011-2015

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New Requirements For Providers

Bundled or global payments will require coordination and management of care (cost) – Primary care– Preventive services– Acute care– Post-acute care– Chronic disease management

If hospitals don’t take the lead or partner to make this work, others will set standards of care and price… (Peach State, Piedmont Physicians)

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Post Reform Realities• Grady and its physician partners must continuously

improve performance and attract new patients • Must be able to manage and deliver care

competitively (Quality and Cost)• Growth is Critical

– Demand will increase in the short term but fall in the longer term

– Patients will have and exercise choice ▬ Grady’s patient base could disappear

– Hospitals that rely on EDs and clinics for volume and growth will be at risk

• Outside support for safety net services will be reduced

Grady will have to adjust services to income

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The Challenges Are Greater

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New Challenges And Risks

• Further market consolidation of hospitals, physicians and/or payors

• Increased competition for current safety net and newly insured patients

• Acceleration of “value” based and/or bundled/captitated payment systems (Piedmont)

• Rapid deployment of alternative payment methodologies by private insurance companies

• Major change in external funding • State not prepared to implement reform

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Grady’s Choice!• A reform-ready Grady can be a formidable

competitor and support most if not all of its service, teaching and research objectives

• The potential for Grady: – More patients with coverage – Fewer safety net patients – Incentives for quality care = more investment

opportunity– Reduced funding

Is Grady ready to accept this Challenge?

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Lunch & Finance Committee

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3

4

5

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Option 1: Stay The Course

What is it: Continue course of incremental improvement with heavy reliance on external funding to support safety net mission as long as possible.

Implications: • Reform may encourage other providers to care for

insured former safety net patients.• Grady may reach a point of non-recoverable

insolvency in 3 +/- years• Grady achieves its mission and declares victory and

winds down

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Option 2: Safety Net

What is it: Continuously adjust services to reflect reality of funding

Implications:• The scope and volume of services will be reduced over

time• The educational mission will be reduced• Patient population will be those that a can’t get service

elsewhere• This option is only sustainable with on-going

community subsidies or Grady closes.

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Option 3: Change MissionWhat is it:

Grady becomes a competitive community hospital:– Limited, if any, medical education research activity– Grady no longer aspires to national clinical leadership– GME investments used to hire physicians to serve its

patients

Implications:– EUMS and MSM must find other teaching sites– Grady is able to exert greater “control” over care delivery

and program growth– Safety net mission is sized to met economic reality– Grady looks like Crawford Long or Atlanta Medical Center

Is This Feasible in Atlanta?

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Option 4: Part Of Something Else?

What is it:

Grady becomes part of a local system or is acquired by a national for profit chain

– Detroit Medical Center

Implications:• Control shifts to a third party. Funding for safety net

service will be a risk• Grady becomes profitable or goes out of business

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Option 5: Grady Care 2020What is it:

Grady organizes a community competitive system of care that attract patients with choice, as well as, safety net patients.– Operates with committed physician and other provider partners– Provides high quality and cost effective care that attracts

individuals and payers– Grady grows

Implications:– Grady makes the investments needed for transformation– Grady and its medical school and physician partners align their

relationships and incentives to make this work– Grady and its partners must be “community competitive”

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Break

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Where Do We Go From Here?

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The Fundamental Transformation Questions Revisited

• Can we change Grady rather than be changed by circumstances?

• Can we change the teaching/service delivery model at Grady?

• Can Grady reverse “treat those that show up” mindset?

• Can we master global risk, bundled payment or populations based payment methods?

• Do you want to declare victory, acknowledge the changed environment may not support a safety net Grady and close shop?

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The Two Fundamental Choices

• Make the existing model work:– Treat patients that show up– Adjust to volume, price and subsidies (options 1-4)

• Create a new community competitive model:– Be competitive and win new business from all

payers and patients with choice– Become a retail force (manager of covered lives

and premiums) with a community competitive network of physicians, hospitals and other providers - a market maker)

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Options 1- 4 ▬ Sustainable Over Time?

• Payment Rates

• DSH

• Volume @ risk

• Costs

• Capital Investment

• County Support?

• Community Acceptability ?

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What Is A Winning Game for Grady?

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The Winning Game For Grady

• Establish and maintain a care management and cost control culture (right care, right time and right place).

• Community competitive network of hospitals and physicians with a broad geographic reach

• Attract a loyal customer base willing to contract with Grady and its physicians

• Become a destination of choice for selected services and consumers

• Manage through the transition period

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Management’s Recommendation

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A Preferred Choice With Realistic Contingencies

• Pursue Grady 2020 - don’t hedge

AND• Be ready to change direction

• Identify acceptable options• Carefully monitor your business

environment• Prepare the groundwork now

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Grady’s New Priorities

• Relentless attention to cost structure and operational performance

• Build a “community competitive” “system of care” capable of accepting global payment

• Align physician relationships and incentives around cost effective delivery of care

• Make Grady attractive to patients with choice - Expand patient base relentless while building loyalty

• Create a care delivery/managed care entity that enrolls and cares for sufficient patients to support the enterprise

• Match services and revenue form all sources• Manage the transitions

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Grady’s New Model of Care Delivery – A Work In Progress

Grady and its physician partners must create a community competitive network of providers that includes:

• Hospitals• Physicians• Non-acute care providers• Payers

The physician network must be:• accessible and customer friendly• include than faculty, residents and

community based physicians

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New Capabilities Required

A Community Competitive Network that attracts patients with choice for selected advanced care (targeted) services from all sources

• ED + Clinics• Neighborhood Health Centers• Accountable Care Organizations• Medical Homes• Private Practice Physicians• Faculty Practice Plans• Commercial Insurance Plans• Other managed care or patient aggregating entities• Referring Hospitals• Other Providers

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New Capabilities Required

Hospital Partners A broad aligned network of efficient, cost-effective

hospitals delivering high-quality care at competitive rates• Linked electronically

• Customer + Quality + Cost focused

• Common standards of care and protocols

• Defined referral and transfer relationships

• The right care at the right time in the right setting

• Partnered with primary care and specialty physicians, as well as, post acute and chronic care providers

• Able to accept bundled or global payment (future)

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New Capabilities RequiredPhysician Partners An aligned network of primary care and specialty physicians

sufficiently large and distributed to serve a targeted population.

May include diverse practice structures including faculty practice plans, private practice physicians in solo, small or larger groups and employed physicians• Electronically linked with each other and with hospital and non-hospital

providers

• High quality standards of care

• Customer + Quality + Cost focused

• Use of protocols and best practices

• Committed to managing care

• Willing and able to accept risk (bundled or global payment)(future)

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New Capabilities Required

Non-Hospital Partners

• An aligned network of post-acute, chronic and long-term care providers as neighborhood or community based ambulatory and diagnostic centers sufficiently large and distributed to serve a targeted population.

• Mutually beneficial relationships with ACOs, IPAs, FQHCs, Medical Homes and non-affiliated providers

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New Capabilities Required – (HMO Competitive)

Electronic Connectivity• Ability to connect providers, patients and their medical records• Order entry and results reporting• Real time visualization of X-rays, Scans. EKGs etc.• Capacity to analyze patterns of care and suggest protocols

Management Systems• Enrollment management• Scheduling and Calendaring• Billing and Collection• Risk Pool accounting

Grady must be able to attract “walk-ins” and patients with choice.

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Grady’s Untapped Advantages• Current momentum• Grady has a system of care in place to manage care

• Large dedicated medical staff (schools)• Employed primary care physicians• Emerging neighborhood network• Acute facility• LTC facility• Transport System• Key clinical programs important to the local population• An insurance license

• Grady has little debt and $180M in capital

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Reform Can Be Good News For Grady … If We Are Prepared!

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How Will We Get There?

• Make Grady Competitive

• Become Reform Ready

• Build the Expanded Grady Care 2020 System

• Do Your Homework on Contingencies

• Make Reform Readiness a Priority

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Grady’s New Model Of Care Delivery

Additional questions to be answered:• How many people will we serve• What is the underlying risk of my population? • What clinical interventions are needed to

improve the health of my patients?• How big a network will be required?

AND• What will reform regulations look like

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Community Competitive

•Patient Centered•Clinically Efficient•Connected

The Right CareThe Right TimeThe Right PlaceThe Right Incentives

(HMO Competitive)

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Community CompetitiveNetwork Elements to Be Built/Expanded

• Hospital Of Choice• Hospital Network• Aligned Physician Network

– MSM– EUSM

• Non-Acute care Network• Grady Ambulatory Network

– Neighborhood heath centers– Faculty practice Plans including employee plan– FQHC and “look alike” relationships

• Formal Relationships with Community Physicians – PHOs, MSOs, This is a great opportunity for specialists at Grady

• Organizing entity “Grady Care 2020”• Patient Loyalty Programs i.e. enhanced Grady Gold

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Elements to Be Built/Expanded

• Build relationships and systems that attract patients with choice– Accountable Care Organization(s)

• Medicare

• Medicaid

• Commercial

– Medical Home(s)• Medicare

• Medicaid

• Commercial

– Infrastructure• Electronic systems

• Care Management Systems

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Network Strategy- the community based network

Priorities• Complete Clinic reorganization• Complete ED alternative programs

– Urgent care– HNC referrals

• Complete NHS improvement plan• Launch 2 (?) Neighborhood health centers• Launch Medical Home for ED users

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Network Strategy- the community based network

Priorities• Establish formal relationships with FQHCs;

create new FQHC (s) as needed under• Begin development of a Grady ACO for launch

in 2011• Launch community physicians referral/

relationship development • Create and market hospital/physician

contracting program• Create needed infrastructure

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How Will This Work Be Organized And Delivered?

• Free CEOs time for this work – hire a COO

• Revise CMO management model from teaching to care delivery and patient acquisition model:– Reporting to CEO– Clinical leadership accountable for efficient and

cost effective care and growth

This will be the new teaching model

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How Will This Work Be Organized And Delivered?

• Streamline reporting to Authority and Counties

• Add managed care contracting capability

• Complete upgrade of main facility

• Build Ambulatory Center

• $10 million in resources over 3 years

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The Critical PerspectiveMajor transformation in 2 key areas:

– From care driven primarily education to care driven by customers and markets

– From care delivered to patients without choice to development of an competitive portfolio of clinical services and with an aggressive patient acquisition strategy

BUT– Grady growth requirements to achieve success

are not heroic: maintaining existing market share is key

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The New Board Focus

• Assure Reform Readiness

• Have the hard conversations about alternatives – now

• Create and manage decision criteria to trigger moving to alternatives – now

• Recognize that you must make the tough decisions to match services and resources – now and in the future

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The New Board Focus

• Monitor progress against the key plan elements • Match institutional capacity with plans and

aspirations• Assure financial sustainability • Maintain funding support for safety net services• Continue to invest in Grady’s development

– Raise sufficient capital to complete upgrades and invest in new capabilities

– Protect income generated through operations

The Board is management’s customer